With home loan interest rates ruling low, time for balance transfer?

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Home loan interest rates have come down to 8.3% currently from the 10% that they were a couple of years ago. With experts predicting that further rate cuts will be minimal, many people think that this is the right time to go for a home loan.

However, existing home loan borrowers are not enjoying the new loan rates that banks are offering. This is because banks are offering these rates to only new borrowers. Old/existing borrowers have been made to pay rates that are at least 1% higher than offered for new borrowers. Do existing borrowers have a choice? Of course, they do.

The borrower should negotiate with the bank to see if the bank will provide them with a lower interest rate. A good repayment track record and good credit score can be used to renegotiate the loan rate. If the bank is not willing to lower the rate, then the borrower could shift their loan to another bank or financial institution that offers better rates. This is called home loan balance transfer.

Home loan balance transfer is the process of transferring your home loan from one lender to another. Other reasons why you could consider a balance transfer is when you are unhappy with the services provided by your lender or when you are not getting any top-up facility on your existing home loan when you want to renovate your home.

The Process

The first thing that you should do is submit a letter to your bank telling them that you are transferring your loan to another lender. Get a No Objection Certificate (NOC) from the bank where you have the loan. You will also need to get a statement that shows your repayments and the outstanding loan amount. Make copies of these documents for your reference. Give the original documents to the lender to whom you want to transfer your loan. Now, this bank will transfer funds to your existing lender to close your loan. After your loan is closed, the bank with which you initially had the loan will transfer the original property documents to the lender that you have chosen. The cancelled cheques that you gave your previous lender will have to be returned by them.

Unlike popular perception, home loan balance transfer involves all those processes that you went through for a home loan. This means that the lender that you have chosen will consider your eligibility and will process your loan application before they decide to take on your home loan. This will also involve processes such as legal verification of property documents and also a check on your credit score. The lender can reject your request for balance transfer if they think that you are not eligible.

The charges

In case you had borrowed the loan just a few years ago, you might have to pay prepayment charges for home loan balance transfer. These charges could be range between 2% and 5% of your outstanding loan amount depending on the lender. If you have held the loan account for a long time, you could negotiate to get those charges waived off.

The lender that you have chosen for balance transfer will charge processing fee for processing your home loan transfer application. This is about 0.5% to 1% of the loan that you will be transferring. Here also you can check if you can get a waiver. Always consider these charges before you transfer. If the charges are too high, it might make no sense to transfer your loan.

Here’s what some of the lenders are offering today.

Bank

Floating Rate Of Interest

SBI

8.35%

ICICI Bank

8.35%-8.80%

HDFC

8.35%-8.85%

Axis Bank

8.35%-11.75%

Aditya Birla Housing Finance

8.55%-8.99%

Source: RupeeIQ estimates, as on 13 Nov 2017.

Note that it is best to transfer your loan when you got the loan only a few years back. This is because, at this point, your interest component will be much higher than your principal repayment. A balance transfer can give you plenty of savings, especially if the interest rate is at least 2% lower.

Use a home loan calculator to see exactly how much you will save after making the balance transfer. You also should compare across lenders to get the best interest rate.